Seven Tips for Turbo-Charging Your Vendor Management Program
By Michael Steer; Erin Harris
August 20, 2018
Michael Steer (MSteer@MQMResearch.com) is President of Mortgage Quality Management and Research LLC (MQMR), Los Angeles, a provider of mortgage risk management and compliance services. Erin Harris (EHarris@MQMRsearch.com) serves as Vendor Manager at HQ Vendor Management, a dba of MQMR that conducts vendor reviews and performs vendor oversight for mortgage lenders and financial institutions. She is a participant in the Mortgage Bankers Association's Future Leaders Program.
It is easy to view vendor management as a budgetary line item that can be cut in order to reduce expenses in the face of compressed margins and rising costs. However, vendor management isn't just a "nice-to-have." It is a regulatory and investor imperative.
Furthermore, vendors represent an underestimated source of risk for lenders, given that the lender is ultimately on the hook for any compliance violations and/or breaches committed by their vendor. As such, it is in every lender's best interest to have a comprehensive vendor management program to identify the level of risk each vendor poses, assess the quality of work being conducted and monitor the overall soundness and security of the vendor and its operations.
Of course, lenders need to balance this with the need to manage internal resources and hold down expenses. To aid lenders in this endeavor, here are seven cost-effective tips for lenders to improve their vendor management programs.
1. Have a written vendor management policy that everyone in the organization follows. Keeping everyone on the same page regarding what's required is crucial to ensuring consistency in oversight across the organization. Otherwise, different departments and/or branches are each conducting their own interpretation of vendor management (including entering into their own contracts with vendors on behalf of the company), which can lead to mass confusion and inefficiency and possibly prove costlier in terms of having to modify or change the process when these discrepancies come to light.
2. Review a vendor list from accounting to ensure that the organization still has active engagements with vendors that are still being paid. No need spending time overseeing a vendor, much less paying them for services rendered, if the organization is not actually using their services. This is a surprisingly common, and costly, error many lenders make.
3. Minimize the number of vendors used to only those that are necessary. For example, many lenders will work with multiple appraisal management companies. If it's reasonable from a compliance and risk perspective to bring that number down from 10 to five, it can save an organization the time and resources of managing an unwieldly number of vendors.
4. Adopt technology to help automate parts of the vendor oversight process. When in doubt, most lenders fall back on the old standby of spreadsheets to keep track of their vendors. By using a vendor management platform, lenders not only have a centralized, organized repository for all information related to their vendors, but they save time and effort by automating many of the task-oriented aspects of vendor management, such as tracking contract renewal dates, on-going due diligence monitoring or simply knowing where the final executed contract is located.
5. Track Service Level Agreements and contract provisions. Don't get surprised by automatic contract renewal dates and/or fee increases. Know what the vendor's responsibilities are to their clients, and be sure the vendor is holding up their end of the agreement/contract. This puts lenders in a much stronger contract negotiation position, enabling them to make strategic decisions about their vendor partners and preventing them to avoid getting locked into vendor relationships that are not serving the organization effectively.
6. Bundle services if feasible. For example, if one vendor can offer five different services rather than using five different vendors, it makes sense to consolidate to streamline the number of vendors that must be monitored. Generally speaking, if a vendor performs well in one area, that level of service is usually consistent throughout the organization so the risk of consolidating services is not as great as one might think. However, it is always wise to consider the risk of consolidating services to a single vendor, especially one who may be operationally critical, and develop a backup plan in a worst case scenario.
7. Consider outsourcing, especially if no one on staff is familiar with vendor management practices. Not only can this strategy ease the burden on an already over-worked internal staff, but it also ensures that lenders have an expert at the helm that can help them manage their risk and offer additional recommendations on how to save time, money, resources, etc. in regards to their oversight process.
Naturally, these suggestions do not constitute the full breadth and scope of a truly robust vendor management program. However, something is always better than nothing, especially in the eyes of regulators and investors, and incorporating these suggestions ensures that lenders have enacted at least a modicum of protection against the risk their vendors pose without breaking the bank.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)